Investment Outlook (Q2/2017)

The Investment Outlook for the second quarter of 2017 has been published.

“When the mind is in a state of uncertainty the smallest impulse directs it to either side.”
Publius Terentius Afer (Terence) (195/185 – 159 BC)

Macro Environment

Inflation pressure in developed markets remains
Trump’s incoherent policy (and Twitter) choices increase uncertainty further both domestically and globally
Political
and economic risks remain at the forefront in the Euro area (elections
in France and Germany, the ongoing Greek dilemma , etc.)
Invoking
Article 50 for the UK’s withdrawal from the EU marks the beginning of
hard negotiations. A hard Brexit is highly likely.

Risks for equity markets increase as doubts about Trump’s “deal making” skills in politics rise
Increased volatility across asset classes and regions ahead with the new US administration still lacking any coherent policy
BoE and ECB on hold for the time being, Fed is preparing 2-3 rate hikes in the coming quarters
Productivity growth continues to be located in emerging markets rather than in developed economies

Reducing risk – lowering the overall weight of the return portion within the overall model portfolio
Equities over Sovereign Bonds
Emerging over Developed Equities
High Yield, EMD and Investment Grade Credit over Sovereign Bonds
TIPS as an (unexpected) inflation hedge

Global trade war initiated by erratic and extreme protectionist measures by the Trump administration
Substantial
growth slowdown in China puts further pressure on commodities and
export oriented countries predominantly in Asia but also elsewhere
Higher
than expected inflation in the US coupled with tax reductions and
substantially increased spending lead to more than expected rate hikes
in the US
Election win by the Front National increases the likelihood of a Euro breakup dramatically
Middle
east conflict escalates further and sends oil prices sharply higher –
leading to substantially higher inflation in the US, but also in the
Eurozone and in the UK
Tensions between the US and North Korea increase substantially and send shock waves throughout financial markets

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